What do private companies and charities have in common?
16/Dec/2014 • Charities & NGOs•
It is well known that implementing a comprehensive FX strategy can allow companies to make the most of their money, by timing trades to make the most of market upswings and accessing risk management tools. However, many charities are also making use of these facilities to great effect. If currency risk can be properly managed when sending funds overseas it can maximise the much needed economic resources of a charity and allow them to have greater impact on the ground.
In many ways, charities and private companies are both working in the foreign sector with a need to transfer money to their organisation, partners or suppliers in different countries around the world. Doing so can be fraught with risk and exposes the organisations, private or public, to new and often highly volatile currencies, which may jeopardize their project or bottom line if not managed effectively. Currency risk should be given full consideration when operating overseas in any capacity and a thorough risk mitigation strategy can allow organisations to: achieve a budgetable foreign exchange level with which to plan their finances, secure their projects knowing that currency fluctuations will not interrupt their progress and deliver more consistent funds to the locations that need it the most.
Often the new currencies that confront organisations trading or sending funds overseas are traded at lower volume, and are therefore less liquid than Sterling, the Euro or the Dollar, and are subject to significant volatility. Utilising these “exotic currencies” is necessary in order to get the supplies needed and trade with local organisations. Whilst difficult to navigate, having access to these more unusual currencies is necessary for charities as the countries in which they are driven to work are often the less economically developed, and so have the least accessible currencies. The process is further complicated by reduced insight into the macroeconomic and political issues within the emerging markets and these factors affect the value of the currency.
If funds are converted into exotic currencies at times of high volatility, less money may arrive at its final destination than expected and so the charity will be less equipped to carry out its humanitarian activities on the ground. For this reason, companies specialising in international payments and currency risk management, such as Ebury, provide support and help mitigate the financial risk that threatens charity work overseas. We analyse the financial needs of each charity and recommend the best strategy for transferring funds overseas. In this way we can maximise value of their funds and reduce the impact that exchange rate fluctuations have on their vital work.
Like private companies, charities can also benefit from payment specialisation within the fintech sector. It can be incredibly difficult to get the necessary funds into the desired country due to a lack of institutional frameworks and few legal systems. Therefore it is important that charities sending money to emerging markets find the right foreign exchange provider who can draw on a network of intermediary banks and make the transfer in the most cost effective, secure and quick way. This reduces the complexities faced in overseas transfers and helps relieve the charities’ internal operations from this often delicate and time consuming process.
To more efficiently manage the transfer of funds, Ebury recommends that charities plan their FX transfers for the coming year, setting a timetable based on the financial needs of each overseas project, so that they can utilise forward contracts and other risk mitigation tools. This allows them to achieve a stable rate for their transfers, regardless of market performance.
Ebury also recommends that charities make sure they are fully aware of the available tools and hedging products in the market and take advantage of the comprehensive FX services that companies are already using to improve their overseas projects. As charity budgets continue to come under scrutiny and funding is increasingly had to come by, there has never been a better time consider how to make the available money stretch further and make more impact on the ground.
If you’re interested in how to make the most of foreign exchange for your charity, read about our solutions for the third sector.